Snake in the tunnel

The snake in the tunnel was the first attempt at European monetary cooperation in the 1970s, aiming at limiting fluctuations between different European currencies. It was an attempt at creating a single currency band for the European Economic Community (EEC), essentially pegging all the EEC currencies to one another.

With the failure of the Bretton Woods system with the Nixon shock in 1971, the Smithsonian agreement set bands of plus/minus 2.25% for currencies to move relative to their central rate against the US dollar. This provided a tunnel in which European currencies to trade. However, in practice it implied a larger bands in which they could move against each other.

The tunnel collapsed in 1973 when the US dollar floated freely. The snake proved unsustainable, with several currencies leaving and in some cases rejoining.